The Bootstrap Economy

Why you should care

If one-person businesses are here to stay, yours could be next.

By Tom Thriveni

The Daily DoseDEC 16 2013

Everybody dreams of being their own boss. Whether it’s the idea of being the strategic visionary, breaking free from micromanagement or just being able to fulfill daily responsibilities on your own terms, the appeal is obvious. Being the only employee? Well, that’s not quite as glamorous, especially in a recovering economy. Nonetheless, whether by design or necessity, Americans continue to work for themselves in ever-greater numbers.

There are a few different ways to get a sense for the number of self-employed Americans out there, but looking at what the U.S. Census calls “nonemployers” is perhaps the most straightforward. A nonemployer refers to a business that made over $1,000 and filed for taxes but lists no paid employees. As of 2011, the U.S. Census Bureau indicated that there were about 22.5 million nonemployers, or self-employed Americans, accounting for just under $1 trillion in sales.

17.1%

Percentage of U.S. employees who were self-employed in 2011

How to put that into context? In terms of the business universe, it’s a lot of people generating a small amount of money. In 2011 the self-employed represented 17.1% of all (nonfarm payroll) employees in the United States, up from 14.3% in 2003. According to the National Association of the Self-Employed (NASE), self-employed firms make up 79% of all small businesses in America. And in turn, the Small Business Administration figures that small businesses make up a whopping 99.7% of U.S. employers. Shockingly, though, the self-employed still account for less than 4% of total business sales. Yes, big business really is that big.

Self-employment is far from a get-rich-quick scheme; the income figures for the self-employed don’t look much different than those of the United States as a whole. In 2011, the average revenue for a self-employed person was $44,000, compared with overall U.S. per capita income of $41,560.

Almost 90% of the self-employed take in less than $100,000 in sales per year. And even with just one employee, there are still practical expenses to take care of. Those might include a handful of energy drinks, as 72% of small business owners report working more than 40 hours per week.

So what does the future hold for those who are eager to put their financial destiny in their own, and only their own, hands? It’s hard to tell. Self-employment grew as a percentage of total payroll for the third straight year since 2008, which could be an encouraging sign for entrepreneurship, although this could also represent fewer individuals returning to full-time work after the Great Recession. The self-employed still have some ground to gain in terms of pay, as average revenue continues to recover gradually from a nearly 6% drop in 2009.

Given these factors, now may not be the best time to jump into self-employment. After all, it remains unclear whether the growth in self-employment is a long-term trend or just a temporary substitute for full-time work.

For those who have been waiting to fulfill a lifelong dream or are on the brink of tearing down their cubicle, however, vague economic forecasts may not play much of a factor in their decision to become their own boss. Sometimes, whether your kingdom is big or small, it’s just good to be king.